Tuesday, June 21, 2011

Masterbeat. The past, present, and future.

The past, present and future.

by Masterbeat on Tuesday, June 21, 2011 at 10:15pm EST

On January 19th, 2011, the Masterbeat.com music download site ceased operations. We know you want to know why. Before jumping straight to the present with the explanation, it would be helpful to have a brief history lesson.

The past.

Working as a marketing specialist for IBM in the early 90’s, Brett Henrichsen had a passion for technology and music. Working by day marketing mainframe computer systems to large corporations, Brett spent nights and weekends at night club’s listening to live DJ’s play his favorite genre of music – dance and electronica.

Brett would take note of his favorite songs and remixes and visit local music stores to buy the music he heard at the clubs. But he was quickly frustrated to learn that the majority of the music he heard wasn’t available on a format accessible to the general public – or even him – they were 12” remixes often pressed and released only on vinyl. Vinyl didn’t play well in your car or on your Walkman, so Brett used a new technology at the time – the CD burner – available to him at IBM, to burn CD’s for himself and friends of the “remixes” he was hearing at the clubs. At the time, a CD burner was the size of a VCR and cost over $10,000. A single blank CD often cost over $100. No one, including Brett, dreamed at the time that 15 years later even the CD would be extinct as everyone downloaded electronic copies of the music – including on a site called Masterbeat.com.

One day a good friend and frequent recipient of one of Brett’s custom CD’s told him “these are good – you should sell them” and Masterbeat was born.

From the late ‘90’s as a promotional DJ tool, to the early 2000’s as a fully licensed compilation series, Masterbeat grew in popularity and became the source for many to find the music they were looking for.

Later on, the rise of the internet saw the launch (and legal battles) of sites like Napster and Audio Galaxy, and the eventual creation and launch of legitimate download sites iTunes and Beatport. No one needs a lesson on how this affected the music industry – as physical distribution dwindled, the dance compilation CD was hit the hardest – no one wanted to wait several months from the time they heard a song in the club for a CD to be licensed, manufactured, and distributed. People demanded instant gratification, and the internet provided that.

Brett knew Masterbeat had to reinvent or die, so he looked back on what had made Masterbeat successful the first time – it was a place were people who loved dance music could find remixes they couldn’t find anywhere else. Looking at the current landscape of music services in 2006, Brett found that even with the internet (and iTunes and Beatport), the same problem existed that he had tried to solve 10 years earlier – there was still no legal place for consumers to find many mainstream remixes from their favorite artists. Beatport was doing an incredible job selling dance music to DJ’s and the underground club scene, but the mainstream consumer wasn’t targeted; while iTunes carried everything mainstream but with very little focus on DJ remixes.

Masterbeat.com was launched on January 1st, 2008 with the goal to position itself directly between iTunes and Beatport as a dance music site aimed at the general consumer and dance enthusiast, as well as for DJ’s looking for remixes from major artists and labels.

Although proving to be more difficult than anyone could imagine, Masterbeat was successful in securing full catalog distribution deals with all four major labels, and the dream was launched, but not without it’s hurdles.

Just as they were slow to embrace the digital world, the major labels were slow to embrace Brett’s vision to release and sell their remixes properly. Stuck in the tradition of the physical world, they typically had promotional departments that never spoke to their sales departments – resulting in remixes being sent out promotionally and for free weeks and even months before being electronically “pushed” to Masterbeat for legal sale. This defeated Masterbeat’s goal of providing immediate access to mixes the moment they were played in the club.

The worst of the four, Sony BMG, went so far as to pull their entire catalog from Masterbeat after remixes were made available for sale on the site soon after they were promoted but before their “official street date” (even though the remixes had already been delivered to Masterbeat’s servers waiting for that magic “street date” in the future and while the remixes were being downloaded in the tens of thousands on illegal blogs). It turned out Sony would rather that Masterbeat.com’s consumers steal the remixes from blogs and email blasts than get them legally from a site they had a real (and expensive) distribution deal with. Makes total sense, right? Yes, this is the same company that faced civil lawsuits and federal penalties for hiding rootkits (a form of virus that installs itself on an unsuspecting user’s PC) on their artist’s CD’s in the early ‘90’s in efforts to prevent them from being copied.

Other labels, like Universal Music Group, the most supportive and advanced of the four majors, tried to embrace Masterbeat and made many of their remixes available exclusively on the site – but it all resulted in an inconsistent consumer experience.

Unfortunately for Masterbeat, it launched right before the world economic crisis of 2008, and a great portion of its investor’s portfolio was lost in the crash, causing Masterbeat’s growth and marketing plans to be stunted. Without a significant marketing budget to tell the world it existed, Masterbeat was forced to grow on word of mouth and left to sustain itself on a small loyal following of DJ’s, audiophiles and it’s original CD customer base.

Masterbeat tried desperately to be “the iTunes of dance music” without the volume, resources or revenue of Apple, but with most of the same expenses. Like iTunes and other music sites, Masterbeat’s standard label distribution deals called for Masterbeat to receive 30% of every sale while the labels earned 70%. With songs priced between .99 and 1.99, it doesn’t take a mathematician to calculate that it would take a lot of downloads for Masterbeat to cover it’s expenses. While many think it couldn’t cost much to distribute music electronically, this couldn’t be further from the truth – Masterbeat.com’s expenses included high-tech servers and hard drives to store and deliver millions of tracks, internet bandwidth, credit card and fraud fees, and finally a small staff to handle label relations and ingestions (the process of adding new tracks to the catalog, often pouring in at the rate of 10,000 tracks per week.) Even though he was the president and typically the customer service agent, email marketer, label rep and accountant, Brett never took a salary from the company, rather he often found himself racing to the bank after a personal DJ gig just to make payroll. Earning only .30 cents on the dollar, Masterbeat.com needed to sell at least a hundred thousand downloads a month to cover its overhead – a number it never came remotely close to reaching with it’s relatively small customer base. In the end, the site would lose millions over the three years of its operation.

But Brett and the other investors in the company didn’t give up. They spent the next three years not only pouring their own personal money into the company to keep it operational, but also pounding the pavement to find outside investment from potential partners, banks and finally - in a unique twist – by going public.

Finding investment in a small private company, especially one in the beleaguered music industry, was virtually impossible in post-2008 economic times. In early 2010, the original investors in the company were advised that they might have an easier time raising capital if they were a public entity, because some investors liked the appeal of “stock” as liquidity and a “way out” of an investment. Still not willing to give up, the principals of the company decided to give it a try and completed a reverse merger (compared to an IPO, a simpler and faster way to “go public” by merging into an existing public company that wants to go private – essentially “trading places”) and Masterbeat Corporation was born with a stock symbol of MSTO. Through friends they assembled a board of directors with several music industry heavyweights that worked hard with their contacts at the major labels to re-emphasize the goals of Masterbeat and renegotiate stifling distribution agreements.

Unfortunately, this route didn’t prove to be any more successful. Brett spent countless months presenting to investment banks and Wall Street types, trying to explain the concept of an exclusive or unreleased remix to a suit that didn’t know an MP3 from panty hose, all the while spending nights and weekends trying to keep the site operational.

Just as they feared all hope was lost, the principals were introduced to a smaller investment bank on Wall Street that took interest in the Masterbeat story and provided the company with a short term bridge loan while it promised to help raise the capital needed to sustain and grow the site – and pay back the loan. Much like a broken record (no pun intended) the new firm wasn’t any more successful in raising the necessary capital and found themselves holding a promissory note that couldn’t be collected, and - important to this story – a note that allowed them to assume control of the company in such a situation.

None too familiar with the music industry, the Wall Street firm was initially interested mostly in the public “shell” – the vehicle that allowed Masterbeat to be publically traded had some value, no matter what the business was that was in it. A decision had to be made – spin the music site back out to a private company (that would then most likely go bankrupt as it’s working capital (and Brett and the other investor’s bank accounts had long before dried up)), or keep and try to operate the existing audio download site.

In early 2011, the firm decided to take control of the music site with plans to merge it with two other music-related properties it had also inherited, and eventually create a new combined site that would couple the original Masterbeat store and backend with their existing artist discovery and DJ site. Fearing history would continue to repeat itself and already bloody from years of beating his head against the wall, Brett Henrichsen resigned from the company as the Wall Street firm took financial and management control. Agreeing to stay on as a “creative consultant” Brett tried to offer advice on running the company, securing remixes, and working with his contacts at the major labels.

Despite a refreshed business plan and new concepts for growth, the firm found itself looking for capital during a time where Amazon and iTunes were announcing their cloud services, Spotify is announcing an imminent US launch, and Google is announcing it’s own new music service. In other words, still looking for money for a niche concept in a shaky industry dominated by Apple and internet heavyweights.

The present.

Even though the company had done everything humanly possible to cut expenses and overhead, it was still impossible for the site to sustain itself – as an even new problem had presented itself: without the marketing dollars to advertise, Masterbeat was not only unable to drive new customers to the site – it was actually losing customers (which equaled even greater monthly losses). With an impossibly thin staff, Masterbeat was no longer able to provide top notch customer or technical support or keep up with the constant influx of titles to properly catalog and market them.

But most dramatically, Masterbeat.com was a victim of an industry that seems determined to kill itself. The site’s original customer base was primarily made up of dance enthusiasts and DJ’s. The major labels continued to send their remixes out to this very demographic promotionally (for free) long before making them available for legal sale (even on Masterbeat.) DJ’s and dance enthusiasts won’t wait, so underground blogs have flourished – often posting illegal links to remixes minutes after the labels send them out to a select group of contacts. Masterbeat.com’s other customer demographic – the general consumer, is increasingly able to get their “fix” for remixes via DJ podcasts – also for free. All of this “promotion” is resulting in a new generation that believes music is… free. Why pay for a remix 3 weeks from now when it’s “street date” rolls around when you can have it for free now? Why wait for that hard to find or exclusive DJ remix to go through the legal hurdles of being approved for sale on Masterbeat when you can get it now, for free, in that DJ’s own current podcast?

And here we are. With no new investment, little management and decreasing revenue; the difficult decision was finally made last week to cease operations of the music download site, a decision supported by both its founder Brett Henrichsen and the new Wall Street owners.

The future.

What will become of the Masterbeat brand, and Brett’s original and ongoing dream to bring hard to find music to the masses?

First, it is unclear what will become of the music download site itself. The site code and label agreements remain the property, and headache, of the public corporation and the Wall Street management. It is believed they still have plans to combine their other sites and launch a new service, but whether it will contain a store element is uncertain.

As for Masterbeat, the legendary brand will live on and evolve, although without the online music store Brett dreamed of. When the company merged and went public over a year ago, Brett kept control of his namesake creation by licensing the name and logo of “Masterbeat” and the domain “masterbeat.com” to the corporation in a non-exclusive license for the music site to use as long as it remained viable. Now that the site operations have ceased, that license is being terminated.

In a completely separate line of business that will continue and thrive, the Masterbeat brand produces highly popular dance events in Los Angeles, including an annual series of events at LA’s finest nightclubs over New Year’s Eve each year. (In fact, it was always frustrating for Brett to learn that the majority of attendees at these events were completely unaware there was a music site by the same name where they could download the music they heard at the event, despite many attempts at cross promotion. Likewise, most Masterbeat.com customers around the world were unaware of, let alone attended, a Masterbeat event.)

While the rest of the future can’t be told, one thing is certain – Brett doesn’t give up easily, and most likely will try to find away to keep his passion for dance music alive beyond his events.


Masterbeat would like to thank everyone that shared it’s passion for dance music and supported the site for it’s 3.5 years in existence, and would like to remind you – music is not free – it costs more than you can imagine to produce, remix and distribute. Support your favorite artists and producers by buying the music you enjoy. We recommend the following sites – help them stay in business:


1 comment:

Jinky said...

This just goes to show how out of touch the gays are with dance music. In a year when house exploded into the mainstream pop charts, large scale electronic dance music festivals added extra days to their schedules, and the rave scene started getting coverage in mainstream music publications, this should have been a boom year for Masterbeat. Beatport has seen profits increase by 25% yet Masterbeat goes under? Masterbeat's mistake was being too focussed on pop and top 40 remixes, and not true dance music. Non-gay DJs visiting their site were put off by the plethora of Britney and Gaga mixes, and went elsewhere to buy their tracks. That left gay DJs and their fans to keep the site afloat. There simply aren't enough gay DJs out there to make a site profitable. And the gay pop/dance fans are not the most honest when it comes to legally purchasing music.